December 11, 212 Mahindra Holidays & Resorts India Ltd. Jiyo Life. CMP Rs 327 Target Rs: 419 Initiating Coverage - Buy Key Share Data Company Profile Face Value (Rs.) 1 Mahindra Holidays & Resorts India Limited (MHRIL), is one of the Equity Capital (Rs.Cr) 83.8 leading players in the leisure hospitality industry and part of the US$ M. Cap (Rs. Cr.) 2,688 15.9 bn multinational Mahindra Group. It offers a unique vacation 52-wk High / Low (Rs.) 347/253 ownership model (VO) to Indian consumers. Club Mahindra is the Avg.Volume (qtrly) 15,992 flagship brand, the other brands offered by the company are Zest BSE code 53388 Breaks, Club Mahindra Fundays and Mahindra Travels. MHRIL has 43 resorts across exotic locations in India and abroad with a 151K NSE code MHRIL member base. Bloomberg code MHRL Shareholding Pattern (as on Sept 3,212) 12.86% 4.25% Promoters.77% 3.68% FII Source: Company data, BSE 82.69% DII Non Institutions Bodies corporate Financials (Rs In Cr.) Particulars FY11 FY12 FY13E FY14E Net Sales 578 644 851 growth (%) 6% 16% 11% 32% EBIDTA 123 95 124 181 PAT 1 12 123 156 growth (%) -15% 2% 2% 27% EPS (Rs.) 12. 12.2 14.7 18.7 BVPS (Rs.) 183. 21.3 221.2 258.5 Key Ratios FY11 FY12 FY13E FY14E P/E (x) 27.2 26.7 22.2 17.5 P/BVPS (x) 1.8 1.6 1.5 1.3 M.Cap/Sales (x) 4.7 4.3 3.2 2.7 EV/EBIDTA (x) 2.8 27.3 2.8 14.2 ROCE (%)incl. DI 6.6% 6.1% 6.7% 7.2% ROCE (%)excl. DI 19.8% 18.% 18.9% 18.1% ROE(%) 2% 18% 19% 18% EBIDTA Mar. (%) 25% 17% 19% 21% PAT Mar. (%) 2% 18% 19% 18% Price Performance MHRIL vs Sensex 3% 2% 1% % Investment Rationale Strong increase in room inventory: MHRIL has nearly tripled its room inventory capacity to 249 in the FY27-212 period, the company has added 425 rooms across 1 resorts during the FY12 During the 1HFY13, the company has added 313 rooms by way of acquisition. MHRIL has announced three Greenfield properties in Goa, Shimla and Virajpeth, these properties are expected to add a total of 4 rooms by FY14. Robust upward path for member additions: MHRIL has aggressively increased its member base at 22% CAGR over FY7-12, which stands at ~151K as on 1HFY13. MHRIL has received the license to operate in Dubai. It will soon commence a full fledged office to enroll Indians in Dubai as its members. We expect that along with aggressive addition of room inventory, MHRIL should enhance its member base by 29% between FY12-14. Capex funding from internal sources: The MHRIL s strategy to fund capex from membership fees & internal accrual will help it to maintain debt at negligible levels. Outlook & Recommendation: At current market price of Rs. 321, the stock is trading at a P/E of 26.7, 22.2 and 17.5 of FY12, FY13E and FY14E earnings of Rs.12.2, Rs.14.7 and Rs 18.7 per share respectively. 1% 2% Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 MHRIL Bse Midcap Analyst: Rupali Goregaonkar Tel No.:+91 22 2281 912; Mob: +9198251348 Email: rupali.goregaonkar@skpmoneywise.com We continue to value MHRIL using the discounted cash flow (DCF) methodology with a target price of Rs. 419/share. We recommend Buy rating on the stock, at 28% upside over the period of 15 months. SKP Securities Ltd www.skpmoneywise.com Page 1 of 1
The Industry: Overview Timeshare industry: Timeshare is the right to use of a property such as a vacation resort or condominium units. Investors (members) hold the rights of the property, being allotted a period of time (weeks) once in an every year. In India, members pay between Rs 2 lacs and Rs. 9 Lacs to use a timeshare property for around a week once in a year for 25 years. Vacation ownership is majorly categorizing into deeded and right to use contracts, others types include fixed week, floating and rotating ownership. Globally, the time sharing industry stands at $13.1 billion (around Rs. 71,25 cr. today). There are over 5 resorts in hundred countries, with 9.3 mn timeshare owners, according to RCI data. The US has the largest share of 29%. Globally, the VO model is quite popular, with leading resorts (in USA) Orient hotel express, Hyatt Hotel, Wyndham vacation resorts, Starwood vacation ownership, Choice hotel, Morgan hotel, Mariott, Hilton Grand, Disney, Breckenridge, Massanutten resorts. In India, the time sharing industry is still in a nascent stage, the growth posted in 28 was 25%, against the last five year average of 18%, According to RCI data. According RCI estimation, demand for the timeshare products likely to grow by 16% p. a. from 26 to 215, on the back of expanding the base of the domestic tourism market, a robust economy and proliferation of nuclear families having higher disposable incomes and the changing trend of holidaying. Number of Domestic Tourist visits to all states/ UT in India, (1997-211) Source: Ministry of Tourism, Government of India Percentage Share of India in International Tourist Arrivals in World and in Asia & the Pacific Source: Ministry of Tourism, Government of India SKP Securities Ltd. www.skpmoneywise.com Page 2 of 1
Typical profile of Timeshare consumers in India Average age 42 years Average household size 4 people Typical children count Between 1 and 2 Membership gender 89.8% male Source: AIRDA According to AIRDA, there are 45 vacation ownership companies operating in India, promoting 8 resorts and units, The entire vacation ownership membership in India is about 2. The average annual addition is about 18 and the industry is growing at over 15% on a CAGR. The Planning Commision has recommended four fold increase in the allotment of funds for tourism during the 12 th Five Year Plan. An amount allotted Rs. 21 cr. against Rs. 5156 cr. in 11 th Five year plan, this will leads industry needs to add 1 mn incremental tourist arrivals every year, 2 room inventory every. The Indian VO industry is witnessing exponential growth on the back of accelerating demand, increasing in discretionary spending on the unique business model. The company: Snapshot MHRIL was incorporated in 1997 and is the part of the USD 15.9 bn multinational Mahindra group. The company has established itself as a market leader in the family holiday business. It offers quality family holidays through vacation ownership (VO) model to Indian consumers with 43 resorts spread across exotic locations in India and abroad, while company s Club Mahindra is the flagship brand, the other brands offered are Zest Breaks, Club Mahindra Fundays and Mahindra Travel. Members can choose to holiday at any fully operational resorts, for seven days each year for a fixed number of years. Product Portfolio: 1997 Club Mahindra 26 Zest 26 Club Mahindra Fundays 28 Club Mahindra Travels Flagship brand : India's no. 1 holiday brand Offer Family Holidays 7 days every year for 25 year 27 resorts in India and Thailand. 587 resorts through RCI Age Segment 3-55 years Offers "Short Breaks" 6 days every year for 1 years Across 5 resorts Target segment young urban families Corporate Membership Offers reward & recognition solutions Points based platform to aid flexibility for Corporates 1 stop shop for family holiday travel related services Powered thru e-commerce website, dedicated call center 28 21 Mahindra homestays Terra Source: Company Presentation Provides accomodation in private homes Has aggregated 25 homes across 14 states Launched in the UK, extended into India Tented campsite specially designed for families Outdoor & Adventure activities to bring people closer to nature SKP Securities Ltd www.skpmoneywise.com Page 3 of 1
92.96, 16% 83.12, 14% 397.38, 69% sale of vacation ownership Resorts Income Annual Subscription fee Income from travel services & home stays 4.64, 1% The Business Model: (Revenue Breakup FY12, Rs. in cr.) Income from sale of Vacation Ownership: This is a major head of revenue, which constitute to 69% of total revenue. Income from sale of VO is charged for 25 year, this income is received upfront basis, however, only 6% is reported in the P&L and remaining 4% is carried in the balance as deferred income. Annual Subscription fee: ASF is the fee charges to members on an annual basis. ASF forms 16% of the total revenues Resort Income: RI is the income earned from rooms given to non members. RI forms 14% of the total revenue, RI is divided into (Room rent, food & beverage and wine, liquor and other segment) the company reported growth of 27% in FY11, but in FY12 declined by 7%, mainly on the company s decision to restrict room to non members. Resort Portfolio: Eastern Region Baiguney Gangtok, Royal Demazong Northern Region Binsar, Manipur Villa Binsar, Valley Resort Club Mahindra Kanatal Corbett, Safari Resort Dharamshala, Kangra Valley Manali, Snowpeaks Mashobra (Shimla), Whispering Pines Mussoorie, Hilltop Naukuchiatal, Dancing Waters The Destination, Kandaghat International Resorts Austria, Bon Alpina Mac Boutique Suites - Bangkok Malaysia, Heritage Suites Pattaya, Hill Resort Western Region Jaisalmer Mahabaleshwar Sherwood Gir, Safari resort Goa Emerald Palms Goa Varca Beach Kumbhalgarh, Fort Roop Vilas Palace Nawalgarh Udaipur, Flora Tungi Resort, Lonavala Goa, Jasmin Southern Regions Ashtamudi, Backwater Retreat Coorg, Kodagu Valley Kodaikanal, Hill Country Kumarakom, Club Mahindra Masinagudi, Zest Masinagudi Munnar, Lake View Ooty, Derby Green Poovar, Island Resort Puducherry, Zest Puducherry Swamimalai, Zest Swamimalai Thekkady, Tusker Trails Yercaud, Lake Forest Probable Dillution in Promoter s stake: Currently promoter hold 82.69%, which as per regulatory directive, is expected to be brought down to 75% by June 213. SKP Securities Ltd www.skpmoneywise.com Page 4 of 1
Investor Rationale: Strong increase in room inventory: MHRIL has tripled its room inventory in the last five years, from 675 rooms in FY7 to 249 rooms in FY12. The company is aggressive in increasing its room inventory.it has made an addition of 425 rooms in 1 unique destinations including Sikkim, Mussorie, Mahableshwar, Kumarakom, Jaisalmer, Kanatol, Goa and Rishikesh. MHRIL has acquired three properties in Bangkok (Mac Boutique Suites), Shimla and Kerala, these three properties have added 313 net rooms in the total inventory to 2276 as on 1HFY13. MHRIL has announced three Greenfield project at Goa, Shimla and Coorg (Virajpeth property). These pipelines expected to increase 4 rooms, out of which 1 room expect to get operational by Jan 213. We are estimating that MHRIL s room inventory to increase by 627 rooms in FY 13 and 6 rooms in FY14, on the back of its three Greenfield projects and on the basis of its past track record on acquisition/ developing Greenfield projects. Aggressive increase in room inventory 3 22.4% 6% 3 3 2 2 1 1 Rs. in cr. 398 16 69 14 66 675 779 1177 total room inventory 299 148 627 6 7 6 425 1476 1624 249 2676 3276 4 3 2 1 annual rooms addition room addition 3 2 2 1 1 3.6% 5% 51.1% 26.2% 4% 21.2% 1.% 3% 15.4% 25.4% 2% 11.4% 1% % 25 26 27 28 29 21 211 212 213E 214E total room inventory growth (%) Robust upward path for member additions: The aggressive addition of the inventory will give the company's potential to increase its member base, especially in peak seasons, which will help the company to target the higher revenues. MHRIL has strengthened its customer centric efforts, by launching an online booking facility on its website to empower members and 26% of all bookings are now being done online. SKP Securities Ltd www.skpmoneywise.com Page 5 of 1
2 18 16 14 12 1 8 6 4 2 28,491 1,2 38,691 14,422 53,113 2,42 19,292 17,59 73,533 92,825 19,884 15,285 125,169 17,27 18,89 143,258 16,465 23,99 184,373 3 2 2 1 1 Total Member ship Added Members MHRIL s 43 resorts offer the diversified destinations portfolio to the customers, where the company has a presence in popularizing places as well as new and exotic location across in India and abroad, its give an opportunity to customers not only to visit their favorite holiday destination but also to explore to exotic places. MHRIL has obtained the license to operate in Dubai. It will commence a full- fledged office in Dubai to enrolled Indians in Dubai as its members. Pricing is expected to be same in new markets. We expect the company will maintain its steady growth in member base, with realignment by the company, to serve upgraded bigger units and offers to the existing customers. Members/Room Ratio: 3 3 2 2 1 1 94.4 56.3 78.7 78.9 74.4 77.1 69.9 6. 63.8 57. 66 675 779 1177 1476 1624 249 2676 3276 25 26 27 28 29 21 211 212 213E 214E 1. 9. 8. 7. 6. 5. 4. 3. 2. 1.. Strong increase in room inventory, the ratio of total numbers of members/ room will decline. Increase in room inventory will lead availability of rooms to each member. Rooms Member/ Room Capex funding from internal sources: MHRIL s strategy is basically to fund capex from membership fees and internal accruals. Also MHRIL s ability to cap new room development costs at approx Rs. 6 lacs per room and other prudent cost efficiency measures, enables it to maintain negligible debt. SKP Securities Ltd www.skpmoneywise.com Page 6 of 1
Financial Outlook: Rs. in cr. 7 6 4 3 2 1 51.8% 32.1% 2.4% 11.5% 5.7% 15.5% 11.4% FY7 FY8 FY9 FY1 FY11 FY12 FY13E FY14E Income from VO Income from Resorts Annual Subscription fee Sales growth (%).6.5.4.3.2.1 9 8 7 6 4 3 2 1 Rs. in cr. 29.3% 33.2% 31.6% 25.5% 24.6% 19.3% 16.5% 21.3% 232 42 353 84 393 8 473 118 1 578 12 644 123 851 156 FY7 FY8 FY9 FY1 FY11 FY12 FY13E FY14E Sales PAT EBITDA Margins 35.% 3.% 25.% 2.% 15.% 1.% 5.%.% Steady topline Growth: MHRIL s revenue has grown at CAGR of 2% to Rs. 578 cr. in FY12, similarly PAT delivered 19% CAGR growth over the past 5 years on account of simultaneous growth in new members and rooms inventory. Going ahead, we expect robust building of room inventory and addition of members to enable it to continue grow topline at 21% CAGR during FY12-14E. EBITDA margins are expected to increase from 16.5% in FY12 to 21.3% in FY 14E, which will result in PAT growth of 24% CAGR over the FY12-14E. 2 4.% 15 3.% 1 2.% Rs in cr. 5 FY7 FY8 FY9 FY1 FY11 FY12 FY13E FY14E EBITDA Personnel exp/ NS Admin exp/ NS S & D expenses / NS 1.%.% SKP Securities Ltd www.skpmoneywise.com Page 7 of 1
Consistent Dividend Policy & Return Ratios: MHRIL has a consistent ROCE, ROA and dividend policy. Going forward, we expect the company to maintain the current level. 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% 52% 51% 38% 26% 2% 18% 19% 18% 11% 13% 1% 9% 7% 6% 7% 7% 5 4 3 2 1 3 2 2.6% 16.6% 4 4 4 4 4 3 33.6% 29.5% 33.1% 28.6% 27.2%21.4% 4.% 3.% 2.% 1.%.% FY7 FY8 FY9 FY1 FY11 FY12 FY13EFY14E ROE (excl. DI) ROCE (incl. DI) ROCE (excl. DI) Dividend Dividend Pay out Source: company data & SKP Research Key concenrns: Delay in room addition: Delay in room addition may negative impact topline. It may be due to land acquisition, construction and other regulatory hurdles. Receivables risks: MHRIL offers financing schemes to its customers, currently 9% of total members are availing EMI based membership. Members defaults, could adversely impact company s profitability. Valuations: We continue to value MHRIL using the discounted cash flow (DCF) method. Our DCF assumptions are cost of equity, WACC of 14% and a terminal growth rate of 5% and thereby we derive the fair value of Rs. 419/ share. Summary of DCF Rs. in cr. PV of Cash flow 547 PV of Terminal Value 283 Total value 3377 Add: Cash & Investment 147 Less : Net debt 8 Equity value 3516 No. of shares outstanding 8 Value per shares (Rs.) 419 Assumptions WACC 14.% Terminal Growth Rate 5.% We recommend Buy rating on the stock with a target price of Rs. 419/-, at 28% upside over the period of 15 months. SKP Securities Ltd www.skpmoneywise.com Page 8 of 1
Financial Performance: Financials (Rs.in Cr.) FY11 FY12 FY13E FY14E Cash Flow Statements (Rs.in Cr.) FY11 FY12 FY13E FY14E Net operating income 546 65 72 923 PBT (less exceptional items) 147 143 175 215 Operating Expenditure 377 483 52 669 Add: Dep, int. & Other Exp. 33 24 27 41 EBIDTA 169 167 2 253 Change in Working Capital (24) 149 121 31 Depreciation 22 23 25 38 Op. Profit after change in w. capital 136 293 318 551 EBIT 11 72 99 143 Direct Tax paid 47 87 51 58 Interest 1 1 1 Net cash from Operating Activities 9 25 267 493 PBT 147 143 175 215 Cash flow from Invstment Activities (9) (141) (241) (31) Tax 43 41 51 58 Net Cash from Financing Activities (45) (13) (4) (139) Adj PAT 1 12 123 156 Opening Cash Balance 11 64 25 1 EPS 12 12 15 19 Net (dec.)/inc. in cash (A+B+C) (46) (39) (14) 44 DPS 4 4 4 4 Closing Cash Balance 64 25 1 55 Balance Sheet (Rs.in Cr.) FY11 FY12 FY13E FY14E Financial Ratios FY11 FY12 FY13E FY14E Equity Capital 84 84 84 84 Valuation Ratios(x) Reserves & Surplus 1,446 1,64 1,771 2,84 P/E 27.2 26.7 22.2 17.5 Minority Interest P/CEPS 21.8 18.5 14.1 11.2 Shareholder's Fund 1,53 1,688 1,855 2,168 P/BV (x) 1.79 1.62 1.48 1.26 Total Debt 7 7 6 7 EV/EBIDTA 2.77 27.27 2.8 14.16 Long term borrowing 7 7 6 7 EV/ Sales 5.12 4.5 4.1 3.2 Deffered Tax Liabiity 37 37 37 37 Market cap/ sales 4.72 4.25 3.22 2.74 Dividend Payout 34% 33% 27% 21% Sources of funds 1,574 1,731 1,898 2,211 Net Fixed Assets 482 597 839 1,74 Balancesheet ratios Capital WIP 127 196 165 1 ROCE (incl. Deffered Income) 7% 6% 7% 7% Investments 113 126 126 126 ROCE (excl. Deffered Income) 19.8% 18.% 18.9% 18.1% Total Current Assets 1,46 1,63 1,118 1,351 Asset Turnover 1 1 1 1 -Inventory 3 4 6 9 Dupont Analysis 2.% 18.1% 19.% 18.2% -Debtors 634 438 518 624 NPAT/ EBT (tax burden).68.71.71.73 -Cash & Bank Balances 64 25 1 55 EBT/ EBIT (int. burden) 1.45 1.98 1.76 1.5 -Loans & Advances 541 525 451 468 EBIT Margin.2.13.15.17 Total Current Liabilities 195 251 351 441 Asset /TO Ratio.9.88.75.75 Net Current Assets 851 812 768 91 Asset / Equity Ratio 1.11 1.16 1.32 1.31 Uses of Funds 1,574 1,731 1,898 2,211 SKP Securities Ltd www.skpmoneywise.com Page 9 of 1
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